Avinash Dixit
Biographic Data
| ID | 3605233 |
|---|---|
| NAME | Avinash Dixit |
| GIVEN NAMES | Avinash |
| FAMILY NAME | Dixit |
| SIGNATURE | DIXIT A |
| AFFILIATIONS | Princeton University |
| ORCID | 0000-0002-8929-7503 |
| VERIFIED | Yes |
| TOTAL WORKS | 33 |
| TOTAL CITATIONS | 831 |
| AUTHOR COUNT | 34 |
| EDITOR COUNT | 0 |
| FIRST PUBLICATION YEAR | 1977 |
| LATEST PUBLICATION YEAR | 2014 |
| H-INDEX | 9 |
How Business Community Institutions Can Help Fight Corruption
This paper considers the possibility of collective action by the business community to counter corruption in the award of government licenses and contracts. The analogy is with contract enforcement institutions studied by economic historians and contract law scholars. The institution in this context comprises a no-bribery norm, a community system to detect violations, and a multilateral ostracism penalty upon conviction in a community tribunal. T…
Catalyst or Cause? Legislation and the Demise of Machine Politics in Britain and the United States
In the nineteenth century, British and American parties competed by hiring electoral agents to bribe and treat voters. British parties abruptly abandoned this practice in the 1880s. The conventional explanation is that legislation put an end to agent‐mediated distribution. But this explanation leaves many questions unanswered. Why did the parties use agents for decades, even though they imposed great expense on candidates and were viewed as untru…
Investment under Uncertainty
How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms,…
A game-theoretic perspective on Diego Gambetta's Codes of the Underworld
Everything is a message, everything is full of meaning in the world of Cosa Nostra, no detail is too small to be overlooked. – Judge Giovanni Falcone, quoted in Stille (1995, p. 6) The expressiveness of an individual (and therefore his capacity to give impressions) appears to involve two radically different kinds of sign activity: the expression that he gives, and the expression that he gives off. The first involves verbal symbols or their substi…
Governance Institutions and Economic Activity
Trade Expansion and Contract Enforcement
Consider a world of traders separated in geographic, economic, or social space. Honest trade offers larger gains for more distant traders, but frequencies of meetings, and information flows about cheating, have local bias. Honesty is self-enforcing only between pairs of sufficiently close neighbors. Global honesty prevails only in a sufficiently small world. The extent of self-enforcing honesty is likely to decrease when the world expands beyond …
Common agency with Rational Expectations
We extend the theory of common agency to the situation where the principals’ payoffs are affected by their ex ante expectations of the agent's ex post choice. We show how the usual truthful schedules must be modified to account for the rational expectations constraint. We apply the model to a monetary union where member governments influence the policy of the common central bank using incentive contracts. We examine how the outcomes depend on dif…
Incentives and Organizations in the Public Sector
The paper begins with a brief overview of the theory of incentives, with special attention to issues that are important in the public sector, in general and human capital in particular. It then reviews some case studies and empirical studies of incentives in the public sector, examining how these studies relate to the theory. Some implications for reform and design of organizations are drawn.
The Dynamics of Political Compromise
We characterize efficient self‐enforcing divisions of political or economic surplus between two parties that interact repeatedly. The party in power can decide the allocation, and the parties' political strength changes according to a Markov process. We find that the share of the party currently in power depends not only on its current strength but also on whether it had previously been even stronger since it last came to power. We find that the …
A Repeated Game Model of Monetary Union
Journal Article A Repeated Game Model of Monetary Union Get access Avinash Dixit Avinash Dixit Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 110, Issue 466, October 2000, Pages 759–780, https://doi.org/10.1111/1468-0297.00564 Published: 25 December 2001
A Markup Interpretation of Optimal Investment Rules
We re‐examine the basic investment problem of deciding when to incur a sunk cost to obtain a stochastically fluctuating benefit. The optimal investment rule satisfies a trade‐off between a larger versus a later net benefit; we show that this trade‐off is closely analogous to the standard trade‐off for the pricing decision of a firm that faces a downward sloping demand curve. We reinterpret the optimal investment rule as a markup formula involving…
Mancur Olson – Social Scientist
Isaiah Berlin popularised the saying of the Greek poet Archilochus, 'The fox knows many things, but the hedgehog knows one big thing.' For Berlin, the hedgehog stands for the type of thinkers who 'relate everything to a single central vision, in terms of which they understand, think, and feel' (Berlin, 1978). In this sense, Mancur Olson was the ultimate hedgehog of the social sciences. Most of his research can be seen as the exploration and appli…
Ideology, Tactics, and Efficiency in Redistributive Politics
We model the electoral politics of redistribution when voters and parties care about inequality in addition to their private concerns for consumption and votes, respectively. Ideological concerns about income redistribution lead each party to adopt a general proportional income tax, adjusted to appeal to the ideological leanings of high “clout” groups, with disproportionately many “swing” voters, which the parties also ply with pork-barrel projec…
Common Agency and Coordination
The authors develop a model of common agency with complete information and general preferences with nontransferable utility, and they prove that the principals' Nash equilibrium in truthful strategies implements an efficient action. The authors apply this theory to the construction of a positive model of public finance, where organized special interests can lobby the government for consumer and producer taxes or subsidies and targeted lump-sum ta…
The Making of Economic Policy
The Making of Economic Policy begins by observing that most countries' trade policies are so blatantly contrary to all the prescriptions of the economist that there is no way to understand this discrepancy except by delving into the politics. The same is true for many other dimensions of economic policy. Avinash Dixit looks for an improved understanding of the politics of economic policy-making from a transaction cost perspective. Such costs of p…
Investment Under Uncertainty
Journal Article Investment Under Uncertainty. Get access Investment under Uncertainty. By (AVINASH K.) Dixit and (ROBERT S.) Pindyck. (Princeton, NJ: Princeton University Press, 1994. Pp. xiv + 468. £30.00 hardback, US $39.50 hardback. ISBN 0 691 03410 9.) Daniel Maldoom Daniel Maldoom University College, Oxford Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 106, Issue 436, 1 May 1996, Pages …
The Determinants of Success of Special Interests in Redistributive Politics
We examine what determines whether an interest group will receive favors in pork-barrel politics, using a model of majority voting with two competing parties. Each group's membership is heterogeneous in its ideological affinity for the parties. Individuals face a trade-off between party affinity and their own transfer receipts. The model is general enough to yield two often-discussed but competing theories as special cases. If the parties are equ…
Redistributive Politics and Economic Efficiency
The political process often compensates the losers from technical change or international competition in an economically inefficient way, namely by subsidizing or protecting declining industries instead of encouraging the movement of resources to other more productive uses. We find that a dynamic inconsistency in the game of redistributive politics contributes to this outcome. To achieve economically efficient outcomes, it is necessary that those…
In Honor of Paul Krugman
Paul Krugman is the winner of the 1991 John Bates Clark Medal, given every two years to "that American economist under forty who is adjudged to have made a significant contribution to economic thought and knowledge." I shall attempt to convey a flavor of Krugman's research contributions, grouped into some major themes: product diversity and monopolistically competitive trade; oligopoly and strategic trade policy; the dynamics of trade and exchang…
Investment and Hysteresis
It seems that firms behave contrary to the standard economic theory of investment. We observe that firms do not invest as soon a price rises above long-run average cost; instead firms wait until price rises substantially above long-run average cost. On the downside, firms stay in business for lengthy periods while absorbing operating losses, and price can fall substantially below average variable cost without inducing disinvestment or exit. Recen…
Irreversible Investment with Price Ceilings
A model of irreversible investment in a competitive industry under demand uncertainty is developed. In the absence of restrictions, investment by itself will keep the price from rising above a natural ceiling that exceeds the long-run average cost by an option value factor. When a lower ceiling is imposed, investment is triggered only by the observation of an even higher "shadow" price. As the imposed ceiling is reduced to the long-run average co…
Entry and Exit Decisions under Uncertainty
A firm's entry and exit decisions when the output price follows a random walk are examined. An idle firm and an active firm are viewed as assets that are call options on each other. The solution is a pair of trigger prices for entry and exit. The entry trigger exceeds the variable cost plus the interest on the entry cost, and the exit trigger is less than the variable cost minus the interest on the exit cost. These gaps produce "hysteresis." Nume…
Setting the Price of Oil in a Distorted Economy
Journal Article Setting the Price of Oil in a Distorted Economy Get access Avinash K. Dixit, Avinash K. Dixit Princeton University Search for other works by this author on: Oxford Academic Google Scholar David M. G. Newbery David M. G. Newbery Churchill College, Cambridge Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 95, Issue Supplement, 1 December 1985, Pages 71–82, https://doi.org/10.2307…
International Trade Policy for Oligopolistic Industries
Journal Article International Trade Policy for Oligopolistic Industries Get access Avinash Dixit Avinash Dixit Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 94, Issue Supplement, 1 December 1984, Pages 1–16, https://doi.org/10.2307/2232651 Published: 01 December 1984
Comparative Effects of Devaluation and Import Controls on Domestic Prices
based on any proper theoretical model. The consequent, often bitter, controversies are exemplified in the various discussions of the New Cambridge macroeconomics in Brunner and Meltzer (1978). The reason is also familiar: the difficulty lies in formulating a tractable model that can address the issues at stake. It is the aim of this paper to construct such a model, and to put it through its paces by performing the desired comparisons in some simp…
The Determinants of Success of Special Interests in Redistributive Politics
We examine what determines whether an interest group will receive favors in pork-barrel politics, using a model of majority voting with two competing parties. Each group's membership is heterogeneous in its ideological affinity for the parties. Individuals face a trade-off between party affinity and their own transfer receipts. The model is general enough to yield two often-discussed but competing theories as special cases. If the parties are equ…
Redistributive Politics and Economic Efficiency
The political process often compensates the losers from technical change or international competition in an economically inefficient way, namely by subsidizing or protecting declining industries instead of encouraging the movement of resources to other more productive uses. We find that a dynamic inconsistency in the game of redistributive politics contributes to this outcome. To achieve economically efficient outcomes, it is necessary that those…
Common Agency and Coordination
The authors develop a model of common agency with complete information and general preferences with nontransferable utility, and they prove that the principals' Nash equilibrium in truthful strategies implements an efficient action. The authors apply this theory to the construction of a positive model of public finance, where organized special interests can lobby the government for consumer and producer taxes or subsidies and targeted lump-sum ta…
Entry and Exit Decisions under Uncertainty
A firm's entry and exit decisions when the output price follows a random walk are examined. An idle firm and an active firm are viewed as assets that are call options on each other. The solution is a pair of trigger prices for entry and exit. The entry trigger exceeds the variable cost plus the interest on the entry cost, and the exit trigger is less than the variable cost minus the interest on the exit cost. These gaps produce "hysteresis." Nume…
The Role of Investment in Entry-Deterrence
The theory of large-scale entry into an industry is made complicated by its game-theoretic aspects. Even in the simplest case of one established firm facing one prospective entrant, there are some subtle strategic interactions. The established firm's pre-entry decisions can influence the prospective entrant's view of what will happen if he enters, and the established firm will try to exploit this possibility to its own advantage
The Dynamics of Political Compromise
We characterize efficient self‐enforcing divisions of political or economic surplus between two parties that interact repeatedly. The party in power can decide the allocation, and the parties' political strength changes according to a Markov process. We find that the share of the party currently in power depends not only on its current strength but also on whether it had previously been even stronger since it last came to power. We find that the …
Trade Expansion and Contract Enforcement
Consider a world of traders separated in geographic, economic, or social space. Honest trade offers larger gains for more distant traders, but frequencies of meetings, and information flows about cheating, have local bias. Honesty is self-enforcing only between pairs of sufficiently close neighbors. Global honesty prevails only in a sufficiently small world. The extent of self-enforcing honesty is likely to decrease when the world expands beyond …
International Trade Policy for Oligopolistic Industries
Journal Article International Trade Policy for Oligopolistic Industries Get access Avinash Dixit Avinash Dixit Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 94, Issue Supplement, 1 December 1984, Pages 1–16, https://doi.org/10.2307/2232651 Published: 01 December 1984
Investment and Hysteresis
It seems that firms behave contrary to the standard economic theory of investment. We observe that firms do not invest as soon a price rises above long-run average cost; instead firms wait until price rises substantially above long-run average cost. On the downside, firms stay in business for lengthy periods while absorbing operating losses, and price can fall substantially below average variable cost without inducing disinvestment or exit. Recen…
Catalyst or Cause? Legislation and the Demise of Machine Politics in Britain and the United States
In the nineteenth century, British and American parties competed by hiring electoral agents to bribe and treat voters. British parties abruptly abandoned this practice in the 1880s. The conventional explanation is that legislation put an end to agent‐mediated distribution. But this explanation leaves many questions unanswered. Why did the parties use agents for decades, even though they imposed great expense on candidates and were viewed as untru…
Irreversible Investment with Price Ceilings
A model of irreversible investment in a competitive industry under demand uncertainty is developed. In the absence of restrictions, investment by itself will keep the price from rising above a natural ceiling that exceeds the long-run average cost by an option value factor. When a lower ceiling is imposed, investment is triggered only by the observation of an even higher "shadow" price. As the imposed ceiling is reduced to the long-run average co…
The Theory of Equilibrium Growth
Journal Article The Theory of Equilibrium Growth Get access The Theory of Equilibrium Growth. By A. K. DIXIT. (London: Oxford University Press, 1976. Pp. x + 204. £4.95 hardback, £2.95 paperback. G. C. Harcourt G. C. Harcourt University of Adelaide Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 87, Issue 348, 1 December 1977, Pages 794–795, https://doi.org/10.2307/2231380 Published: 01 Decemb…
Common agency with Rational Expectations
We extend the theory of common agency to the situation where the principals’ payoffs are affected by their ex ante expectations of the agent's ex post choice. We show how the usual truthful schedules must be modified to account for the rational expectations constraint. We apply the model to a monetary union where member governments influence the policy of the common central bank using incentive contracts. We examine how the outcomes depend on dif…
A Repeated Game Model of Monetary Union
Journal Article A Repeated Game Model of Monetary Union Get access Avinash Dixit Avinash Dixit Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 110, Issue 466, October 2000, Pages 759–780, https://doi.org/10.1111/1468-0297.00564 Published: 25 December 2001
Essays in Economic Analysis
Journal Article ARTIS (M. J.) and NOBAY (A. R.), (Eds.). Essays in Economic Analysis Get access Essays in Economic Analysis. Edited by M. J. Artis and A. R. Nobay. (Cam-bridge: Cambridge University Press, 1976. Pp. x + 282. £8.25.) A. K. Dixit A. K. Dixit University of Warwick Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 87, Issue 345, 1 March 1977, Pages 150–152, https://doi.org/10.2307/22…
A Markup Interpretation of Optimal Investment Rules
We re‐examine the basic investment problem of deciding when to incur a sunk cost to obtain a stochastically fluctuating benefit. The optimal investment rule satisfies a trade‐off between a larger versus a later net benefit; we show that this trade‐off is closely analogous to the standard trade‐off for the pricing decision of a firm that faces a downward sloping demand curve. We reinterpret the optimal investment rule as a markup formula involving…
Investment Under Uncertainty
Journal Article Investment Under Uncertainty. Get access Investment under Uncertainty. By (AVINASH K.) Dixit and (ROBERT S.) Pindyck. (Princeton, NJ: Princeton University Press, 1994. Pp. xiv + 468. £30.00 hardback, US $39.50 hardback. ISBN 0 691 03410 9.) Daniel Maldoom Daniel Maldoom University College, Oxford Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 106, Issue 436, 1 May 1996, Pages …
Setting the Price of Oil in a Distorted Economy
Journal Article Setting the Price of Oil in a Distorted Economy Get access Avinash K. Dixit, Avinash K. Dixit Princeton University Search for other works by this author on: Oxford Academic Google Scholar David M. G. Newbery David M. G. Newbery Churchill College, Cambridge Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 95, Issue Supplement, 1 December 1985, Pages 71–82, https://doi.org/10.2307…
The Three Consumer's Surpluses
Recent years have seen a revival of interest in the concept of consumer's surplus. Among the new ideas and methods that have emerged, the use of the expenditure function is particuarly important. Diamond and McFadden (1974) show how it simplifies the discussion of Hicksian notions of the surplus based on compensated demand functions, viz. the compensating and equivalent variations. Seade (1976) and Willig (1976) show that in certain special cases…
A game-theoretic perspective on Diego Gambetta's Codes of the Underworld
Everything is a message, everything is full of meaning in the world of Cosa Nostra, no detail is too small to be overlooked. – Judge Giovanni Falcone, quoted in Stille (1995, p. 6) The expressiveness of an individual (and therefore his capacity to give impressions) appears to involve two radically different kinds of sign activity: the expression that he gives, and the expression that he gives off. The first involves verbal symbols or their substi…
Mancur Olson – Social Scientist
Isaiah Berlin popularised the saying of the Greek poet Archilochus, 'The fox knows many things, but the hedgehog knows one big thing.' For Berlin, the hedgehog stands for the type of thinkers who 'relate everything to a single central vision, in terms of which they understand, think, and feel' (Berlin, 1978). In this sense, Mancur Olson was the ultimate hedgehog of the social sciences. Most of his research can be seen as the exploration and appli…
In Honor of Paul Krugman
Paul Krugman is the winner of the 1991 John Bates Clark Medal, given every two years to "that American economist under forty who is adjudged to have made a significant contribution to economic thought and knowledge." I shall attempt to convey a flavor of Krugman's research contributions, grouped into some major themes: product diversity and monopolistically competitive trade; oligopoly and strategic trade policy; the dynamics of trade and exchang…
Economic Theory and the Core
Journal Article Economic Theory and the Core Get access Economic Theory and the Core. By LESTER G. TELSER. (London: University of Chicago Press, 1978. Pp. xix + 407. £25.20.) Avinash Dixit Avinash Dixit University of Warwick Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 89, Issue 356, 1 December 1979, Pages 989–991, https://doi.org/10.2307/2231538 Published: 01 December 1979
The Economic Theory of Modern Society
Journal Article The Economic Theory of Modern Society Get access The Economic Theory of Modern Society. By M. Morishima. Translated by D. W. Anthony. (Cambridge: Cambridge University Press, 1976. Pp. x + 347. £10.50.) A. K. Dixit A. K. Dixit University of Warwick and M.I.T. Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 87, Issue 347, 1 September 1977, Pages 582–584, https://doi.org/10.2307/2…
The Theory of Equilibrium Growth
This book aims to bridge the gap between elementary and advanced textbooks on growth theory, and to highlight and clarify the framework of intertemporal equilibrium that underlies much of growth theory
The Theory of Equilibrium Growth
Journal Article The Theory of Equilibrium Growth Get access The Theory of Equilibrium Growth. By A. K. DIXIT. (London: Oxford University Press, 1976. Pp. x + 204. £4.95 hardback, £2.95 paperback. G. C. Harcourt G. C. Harcourt University of Adelaide Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 87, Issue 348, 1 December 1977, Pages 794–795, https://doi.org/10.2307/2231380 Published: 01 Decemb…
The Economic Theory of Modern Society
Journal Article The Economic Theory of Modern Society Get access The Economic Theory of Modern Society. By M. Morishima. Translated by D. W. Anthony. (Cambridge: Cambridge University Press, 1976. Pp. x + 347. £10.50.) A. K. Dixit A. K. Dixit University of Warwick and M.I.T. Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 87, Issue 347, 1 September 1977, Pages 582–584, https://doi.org/10.2307/2…
Essays in Economic Analysis
Journal Article ARTIS (M. J.) and NOBAY (A. R.), (Eds.). Essays in Economic Analysis Get access Essays in Economic Analysis. Edited by M. J. Artis and A. R. Nobay. (Cam-bridge: Cambridge University Press, 1976. Pp. x + 282. £8.25.) A. K. Dixit A. K. Dixit University of Warwick Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 87, Issue 345, 1 March 1977, Pages 150–152, https://doi.org/10.2307/22…
A Theory of the Individual for Economic Analysis. Volume I
Journal Article Lesourne (Jacques). A Theory of the Individual for Economic Analysis Get access A Theory of the Individual for Economic Analysis. Volume I. By Jacques Lesourne. (Amsterdam: North-Holland Publishing Co., 1977. Pp. ix + 408. $42.95, Dfl. 105.00.) A. K. Dixit A. K. Dixit University of Warwick Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 88, Issue 350, 1 June 1978, Pages 355–356…
The Three Consumer's Surpluses
Recent years have seen a revival of interest in the concept of consumer's surplus. Among the new ideas and methods that have emerged, the use of the expenditure function is particuarly important. Diamond and McFadden (1974) show how it simplifies the discussion of Hicksian notions of the surplus based on compensated demand functions, viz. the compensating and equivalent variations. Seade (1976) and Willig (1976) show that in certain special cases…
Economic Theory and the Core
Journal Article Economic Theory and the Core Get access Economic Theory and the Core. By LESTER G. TELSER. (London: University of Chicago Press, 1978. Pp. xix + 407. £25.20.) Avinash Dixit Avinash Dixit University of Warwick Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 89, Issue 356, 1 December 1979, Pages 989–991, https://doi.org/10.2307/2231538 Published: 01 December 1979
The Role of Investment in Entry-Deterrence
The theory of large-scale entry into an industry is made complicated by its game-theoretic aspects. Even in the simplest case of one established firm facing one prospective entrant, there are some subtle strategic interactions. The established firm's pre-entry decisions can influence the prospective entrant's view of what will happen if he enters, and the established firm will try to exploit this possibility to its own advantage
The export of capital theory
Comparative Effects of Devaluation and Import Controls on Domestic Prices
based on any proper theoretical model. The consequent, often bitter, controversies are exemplified in the various discussions of the New Cambridge macroeconomics in Brunner and Meltzer (1978). The reason is also familiar: the difficulty lies in formulating a tractable model that can address the issues at stake. It is the aim of this paper to construct such a model, and to put it through its paces by performing the desired comparisons in some simp…
International Trade Policy for Oligopolistic Industries
Journal Article International Trade Policy for Oligopolistic Industries Get access Avinash Dixit Avinash Dixit Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 94, Issue Supplement, 1 December 1984, Pages 1–16, https://doi.org/10.2307/2232651 Published: 01 December 1984
Setting the Price of Oil in a Distorted Economy
Journal Article Setting the Price of Oil in a Distorted Economy Get access Avinash K. Dixit, Avinash K. Dixit Princeton University Search for other works by this author on: Oxford Academic Google Scholar David M. G. Newbery David M. G. Newbery Churchill College, Cambridge Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 95, Issue Supplement, 1 December 1985, Pages 71–82, https://doi.org/10.2307…
Entry and Exit Decisions under Uncertainty
A firm's entry and exit decisions when the output price follows a random walk are examined. An idle firm and an active firm are viewed as assets that are call options on each other. The solution is a pair of trigger prices for entry and exit. The entry trigger exceeds the variable cost plus the interest on the entry cost, and the exit trigger is less than the variable cost minus the interest on the exit cost. These gaps produce "hysteresis." Nume…
Irreversible Investment with Price Ceilings
A model of irreversible investment in a competitive industry under demand uncertainty is developed. In the absence of restrictions, investment by itself will keep the price from rising above a natural ceiling that exceeds the long-run average cost by an option value factor. When a lower ceiling is imposed, investment is triggered only by the observation of an even higher "shadow" price. As the imposed ceiling is reduced to the long-run average co…
Investment and Hysteresis
It seems that firms behave contrary to the standard economic theory of investment. We observe that firms do not invest as soon a price rises above long-run average cost; instead firms wait until price rises substantially above long-run average cost. On the downside, firms stay in business for lengthy periods while absorbing operating losses, and price can fall substantially below average variable cost without inducing disinvestment or exit. Recen…
In Honor of Paul Krugman
Paul Krugman is the winner of the 1991 John Bates Clark Medal, given every two years to "that American economist under forty who is adjudged to have made a significant contribution to economic thought and knowledge." I shall attempt to convey a flavor of Krugman's research contributions, grouped into some major themes: product diversity and monopolistically competitive trade; oligopoly and strategic trade policy; the dynamics of trade and exchang…
Redistributive Politics and Economic Efficiency
The political process often compensates the losers from technical change or international competition in an economically inefficient way, namely by subsidizing or protecting declining industries instead of encouraging the movement of resources to other more productive uses. We find that a dynamic inconsistency in the game of redistributive politics contributes to this outcome. To achieve economically efficient outcomes, it is necessary that those…
The Making of Economic Policy
The Making of Economic Policy begins by observing that most countries' trade policies are so blatantly contrary to all the prescriptions of the economist that there is no way to understand this discrepancy except by delving into the politics. The same is true for many other dimensions of economic policy. Avinash Dixit looks for an improved understanding of the politics of economic policy-making from a transaction cost perspective. Such costs of p…
Investment Under Uncertainty
Journal Article Investment Under Uncertainty. Get access Investment under Uncertainty. By (AVINASH K.) Dixit and (ROBERT S.) Pindyck. (Princeton, NJ: Princeton University Press, 1994. Pp. xiv + 468. £30.00 hardback, US $39.50 hardback. ISBN 0 691 03410 9.) Daniel Maldoom Daniel Maldoom University College, Oxford Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 106, Issue 436, 1 May 1996, Pages …
The Determinants of Success of Special Interests in Redistributive Politics
We examine what determines whether an interest group will receive favors in pork-barrel politics, using a model of majority voting with two competing parties. Each group's membership is heterogeneous in its ideological affinity for the parties. Individuals face a trade-off between party affinity and their own transfer receipts. The model is general enough to yield two often-discussed but competing theories as special cases. If the parties are equ…
Common Agency and Coordination
The authors develop a model of common agency with complete information and general preferences with nontransferable utility, and they prove that the principals' Nash equilibrium in truthful strategies implements an efficient action. The authors apply this theory to the construction of a positive model of public finance, where organized special interests can lobby the government for consumer and producer taxes or subsidies and targeted lump-sum ta…
Ideology, Tactics, and Efficiency in Redistributive Politics
We model the electoral politics of redistribution when voters and parties care about inequality in addition to their private concerns for consumption and votes, respectively. Ideological concerns about income redistribution lead each party to adopt a general proportional income tax, adjusted to appeal to the ideological leanings of high “clout” groups, with disproportionately many “swing” voters, which the parties also ply with pork-barrel projec…
A Markup Interpretation of Optimal Investment Rules
We re‐examine the basic investment problem of deciding when to incur a sunk cost to obtain a stochastically fluctuating benefit. The optimal investment rule satisfies a trade‐off between a larger versus a later net benefit; we show that this trade‐off is closely analogous to the standard trade‐off for the pricing decision of a firm that faces a downward sloping demand curve. We reinterpret the optimal investment rule as a markup formula involving…
Mancur Olson – Social Scientist
Isaiah Berlin popularised the saying of the Greek poet Archilochus, 'The fox knows many things, but the hedgehog knows one big thing.' For Berlin, the hedgehog stands for the type of thinkers who 'relate everything to a single central vision, in terms of which they understand, think, and feel' (Berlin, 1978). In this sense, Mancur Olson was the ultimate hedgehog of the social sciences. Most of his research can be seen as the exploration and appli…
The Dynamics of Political Compromise
We characterize efficient self‐enforcing divisions of political or economic surplus between two parties that interact repeatedly. The party in power can decide the allocation, and the parties' political strength changes according to a Markov process. We find that the share of the party currently in power depends not only on its current strength but also on whether it had previously been even stronger since it last came to power. We find that the …
Economics (33 works) · Microeconomics (17 works) · Political science (16 works) · Computer Science (14 works) · Economic theories and models (11 works) · Law and economics (11 works) · Sociology (10 works) · Law (9 works) · Economic history (8 works) · Business (7 works)